INVESTMENT MANAGEMENT AGREEMENT
This INVESTMENT MANAGEMENT AGREEMENT, made this 3rd day of June, 1998,
by and between LM Institutional Fund Advisors II, Inc., a Maryland corporation
(the "Corporation"), on behalf of Xxxx Xxxxx Fund Adviser/Western Asset Balanced
Portfolio (the "Fund"), and LM Institutional Advisors, Inc., a Maryland
corporation (the "Manager").
WHEREAS, the Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended ("1940
Act"); and
WHEREAS, the Corporation wishes to retain the Manager to provide certain
investment advisory, management and administrative services to the Fund; and
WHEREAS, the Manager is willing to furnish such services on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. The Corporation hereby appoints LM Institutional Advisors, Inc. as
Manager of the Fund for the period and on the terms set forth in this Agreement.
The Manager accepts such appointment and agrees to render the services herein
set forth, for the compensation herein provided.
2. The Fund shall at all times keep the Manager fully informed with
regard to the securities and other property owned by it, its funds available, or
to become available, for investment, and generally as to the condition of its
affairs. It shall furnish the Manager with such other documents and information
with regard to its affairs as the Manager may from time to time reasonably
request.
3. (a) Subject to the supervision of the Corporation's Board of
Directors (the "Directors"), the Manager shall regularly provide the Fund with
investment research, advice, management and supervision and shall furnish a
continuous investment program for the Fund consistent with the Fund's investment
objectives, policies and restrictions. The Manager shall determine from time to
time what securities or other property will be purchased, retained or sold by
the Fund, and shall implement those decisions, all subject to the provisions of
the Corporation's Articles of Incorporation and By-Laws, the 1940 Act, the
applicable rules and regulations of the Securities and Exchange Commission, and
other applicable federal and state law, as well as the investment objectives,
policies and restrictions of the Fund, as each of the foregoing may be amended
from time to time. The Manager will place orders pursuant to its investment
determinations for the Fund either directly with the issuer or with any broker,
dealer or futures commission merchant (collectively, a "broker"). In the
selection of brokers and the placing of orders for the purchase and sale of
portfolio investments for the Fund, the Manager shall seek to obtain the most
favorable price and execution available, except to the extent it may be
permitted to pay higher brokerage commissions for brokerage and research
services as described below. In using its best efforts to obtain for the Fund
the most favorable price and execution available, the Manager, bearing in mind
the Fund's best interests at all times, shall consider all factors it deems
relevant, including, by way of illustration, price, the size of the transaction,
the nature of the market for the security, the amount of the commission, the
timing of the transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker involved and the
quality of service rendered by the broker in other transactions. Subject to such
policies as the Directors may determine, the Manager shall not be deemed to have
acted unlawfully or to have breached any duty created by this Agreement or
otherwise solely by reason of its having caused the Corporation to pay, on
behalf of the Fund, a broker that provides brokerage and research services to
the Manager or any affiliated person of the Manager an amount of commission for
effecting a portfolio investment transaction in excess of the amount of
commission another broker would have charged for effecting that transaction, if
the Manager determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker, viewed in terms of either that particular transaction
or the Manager's overall responsibilities
with respect to the Fund and to other clients of the Manager and any affiliated
person of the Manager as to which the Manager or any affiliated person of the
Manager exercises investment discretion. The Manager shall also provide advice
and recommendations with respect to other aspects of the business and affairs of
the Fund, and shall perform such other functions of management and supervision,
as may be directed by the Directors.
(b) The Corporation hereby agrees with the Manager and with any
investment adviser appointed pursuant to Paragraph 4 below (an "Investment
Adviser") that any entity or person associated with the Manager or Investment
Adviser (or with any affiliated person of the Manager or Investment Adviser)
which is a member of a national securities exchange is authorized to effect any
transaction on such exchange for the account of the Fund which is permitted by
Section 11(a) of the Securities Exchange Act of 1934, as amended, and Rule
11a2-2(T) thereunder, and the Corporation hereby consents to the retention of
compensation for such transactions in accordance with Rule 11a2-2(T)(a)(2) (iv)
or otherwise.
4. The Manager may enter into a contract ("Investment Advisory
Agreement") with one or more investment advisers in which the Manager delegates
to such investment adviser or investment advisers any or all of its duties
specified in Paragraph 3 hereunder. Such Investment Advisory Agreement must meet
all requirements of the 1940 Act and the rules and regulations thereunder.
5. (a) The Manager, at its expense, shall supply the Board of Directors
and officers of the Corporation with all statistical information and reports
reasonably required by them and reasonably available to the Manager and shall
furnish the Corporation and the Fund with office facilities, including space,
furniture and equipment and all personnel reasonably necessary for the operation
of the Corporation and the Fund. The Manager shall oversee the maintenance of
all books and records with respect to the Fund's portfolio transactions and the
keeping of the Corporation's and the Fund's books of account in accordance with
all applicable federal and state laws and regulations and shall perform such
other administrative, bookkeeping or clerical duties as may be agreed upon by
the parties. In compliance with the requirements of Rule 31a-3 under the 1940
Act, the Manager hereby agrees that any records which it maintains for the
Corporation or the Fund are the property of the Corporation, and further agrees
to surrender promptly to the Corporation or its agents any of such records upon
the Corporation's request. The Manager further agrees to arrange for the
preservation of the records required to be maintained by Rule 31a-1 under the
1940 Act for the periods prescribed by Rule 31a-2 under the 1940 Act. The
Manager shall authorize and permit any of its directors, officers and employees,
who may be elected as Directors or officers of the Corporation, to serve in the
capacities in which they are elected. The Manager may enter into a contract with
one or more other parties in which the Manager delegates to such party or
parties any or all of the duties specified in this Paragraph 5(a).
(b) Other than as herein specifically indicated, the Manager shall not
be responsible for the expenses of the Corporation or any series of the
Corporation, including the Fund. Specifically (but without limitation), the
Manager will not be responsible, except to the extent of the reasonable
compensation of employees of the Corporation and the Fund whose services may be
used by the Manager hereunder, for any of the following expenses of the Fund,
which expenses shall be borne by the Fund: advisory fees; distribution fees;
interest; taxes; governmental fees; fees, voluntary assessments and other
expenses incurred in connection with membership in investment company
organizations; the cost (including brokerage commissions or charges, if any) of
securities or other property purchased or sold by the Fund and any losses in
connection therewith; fees of custodians, transfer agents, registrars,
administrators or other agents; legal expenses; expenses of preparing share
certificates; expenses relating to the redemption or repurchase of the Fund's
shares; expenses of registering and qualifying shares of the Fund for sale under
applicable federal and state law; expenses of preparing, setting in print,
printing and distributing prospectuses, reports, notices and dividends to Fund
shareholders; costs of stationery; costs of shareholders' and other meetings of
the Fund; Directors' fees; audit fees; travel expenses of officers, Directors
and employees of the Corporation, if any; and the Corporation's pro rata portion
of premiums on any fidelity bond and other insurance covering the Corporation
and/or its officers and Directors.
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6. No Director, officer or employee of the Corporation or Fund shall
receive from the Corporation any salary or other compensation as such Director,
officer or employee while he is at the same time a director, officer, or
employee of the Manager or any affiliated company of the Manager. This Paragraph
6 shall not apply to Directors, executive committee members, consultants and
other persons who are not regular members of the Manager's or any affiliated
company's staff.
7. As compensation for the services performed and the facilities
furnished and expenses assumed by the Manager, including the services of any
consultants, investment advisers or other parties retained by the Manager, the
Fund shall pay the Manager, as promptly as possible after the last day of each
month, a fee, computed daily at an annual rate of 0.60% of the average daily net
assets of the Fund. The first payment of the fee shall be made as promptly as
possible at the end of the month succeeding the effective date of this
Agreement. If this Agreement is terminated as of any date not the last day of a
month, such fee shall be paid as promptly as possible after such date of
termination, shall be based on the average daily net assets of the Fund in that
period from the beginning of such month to such date of termination, and shall
be based on that proportion of such average daily net assets as the number of
business days in such period bears to the number of business days in such month.
The average daily net assets of the Fund shall in all cases be based only on
business days and be computed as of the time of the regular close of business of
the New York Stock Exchange, or such other time as may be determined by the
Board of Directors of the Corporation. Each such payment shall be accompanied by
a report prepared either by the Fund or by a reputable firm of independent
accountants, which shall show the amount properly payable to the Manager under
this Agreement and the detailed computation thereof. In the event that the
expenses of the Fund exceed any expense limitation which the Manager may, by
written notice to the Corporation, voluntarily declare to be effective with
respect to the Fund, subject to such terms and conditions as the Manager may
prescribe in such notice, the compensation due the Manager shall be reduced,
and, if necessary, the Manager shall bear the Fund's expenses to the extent
required by such expense limitation.
8. In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Fund or to
any shareholder of the Fund, for any act or omission in the course of, or
connected with, rendering services hereunder.
9. Nothing in this Agreement shall limit or restrict the right of any
director, officer, or employee of the Manager who may also be a Director,
officer, or employee of the Corporation or the Fund to engage in any other
business or to devote his time and attention in part to the management or other
aspects of any other business, whether of a similar nature or a dissimilar
nature, or limit or restrict the right of the Manager to engage in any other
business or to render services of any kind, including investment advisory and
management services, to any other corporation, firm, individual or association.
10. As used in this Agreement, the terms "assignment," "interested
person," "affiliated person," and "majority of the outstanding voting
securities" shall have the meanings given to them by Section 2(a) of the 1940
Act, subject to such exemptions and interpretations as may be granted by the
Securities and Exchange Commission by any rule, regulation or order; the term
"specifically approve at least annually" shall be construed in a manner
consistent with the 1940 Act and the rules and regulations thereunder; and the
term "brokerage and research services" shall have the meaning given in the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder.
11. This Agreement shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Paragraph 12 below) until terminated as follows:
(a) Either party hereto may at any time terminate this Agreement
by not more than sixty days' written notice delivered or mailed by
registered mail, postage prepaid, to the other party, or
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(b) If (i) the Directors or the shareholders of the Fund by the
vote of a majority of the outstanding voting securities of the Fund, and
(ii) a majority of the Directors who are not interested persons of the
Corporation or of the Manager, by vote cast in person at a meeting
called for the purpose of voting on such approval, do not specifically
approve at least annually the continuance of this Agreement, then this
Agreement shall automatically terminate at the close of business on the
second anniversary of its execution, or upon the expiration of one year
from the effective date of the last such continuance, whichever is
later; provided, however, that if the continuance of this Agreement is
submitted to the shareholders of the Fund for their approval and such
shareholders fail to approve such continuance of this Agreement as
provided herein, the Manager may continue to serve hereunder in a manner
consistent with the 1940 Act and the rules and regulations thereunder.
Action by the Corporation under paragraph (a) of this Paragraph 11 may
be taken either (i) by vote of a majority of the Directors, or (ii) by the vote
of a majority of the outstanding voting securities of the Fund.
12. This Agreement shall terminate automatically in the event of its
assignment by the Manager and shall not be assignable by the Corporation without
the consent of the Manager. Any termination of this Agreement pursuant to
Paragraph 11 shall be without the payment of any penalty. This Agreement shall
not be amended unless such amendment is approved by the vote of a majority of
the outstanding voting securities of the Fund (provided that such shareholder
approval is required by the 1940 Act and the rules and regulations thereunder,
giving effect to any interpretations of the Securities and Exchange Commission
and its staff), and by the vote, cast in person at a meeting called for the
purpose of voting on such approval, of a majority of the Directors who are not
interested persons of the Corporation or of the Manager.
13. In the event this Agreement is terminated by either party or upon
written notice from the Manager at any time, the Corporation hereby agrees that
it will eliminate from its corporate name any reference to the name of "LM
Institutional Fund Advisors" or the initials "LM". The Corporation shall have
the non-exclusive use of the name "LM Institutional Fund Advisors" and the
initials "LM" in whole or in part only so long as this Agreement is effective or
until such notice is given.
14. The Manager agrees that for services rendered to the Fund, or
indemnity due in connection with service to the Fund, it shall look only to
assets of the Fund for satisfaction and that it shall have no claim against the
assets of any other series of the Corporation.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized.
LM INSTITUTIONAL FUND ADVISORS II, INC.
Attest:
By: ______________________ By: _______________________
LM INSTITUTIONAL ADVISORS, INC.
Attest:
By: ______________________ By: _______________________
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